Sample_Final_Exam_A For ACC1100.doc

ACC 1100 Final Examination A Page 17 of 17 Name: ID number:Check () the section in which you are registered.INSTRUCTIONS1. Do not open this examination until instructed to do so.2. Please place your student ID card and calculator on the top of the table. 3. There are SEVENTEEN (17) pages in this examination, including this page. When the invigilator gives the signal, check to ensure that you have all the pages.4. There are THREE (3) hours available to complete this examination.5. Indicate your name, University of Manitoba identification number and course section in the space above.6. You are allowed calculators (without text storage), pens, and pencils. You may not have in your possession textbooks, dictionaries, translators, cell phones, additional notes, formula sheets or other extraneous material designed to supplement your knowledge of course material. If you are unsure whether any materials may be prohibited it is your responsibility to raise your hand and ask the invigilator. If it is discovered that you are in possession of any of the prohibited materials you will be charged with academic dishonesty and treated accordingly.7. Write your answers to all questions in this examination booklet. Show all of your work.8. Hand in all pages of the examination.QuestionGrade1 /212/83/104/155/246/137/9Total/100QUESTION ONE (21 marks, 40 minutes)1 mark each:1.As at August 31st Provence Products had $8,000 of accrued wages showing on its balance sheet. On September 10th it paid wages of $12,500. What portion of the wage payment relates to August and Septembers wage expenses respectively?AugustSeptemberA)$8,000$12,500B)$8,000$4,500C)$0$12,500D)$0$4,5002.If a company declares a stock dividend what is the effect on its retained earnings and earnings per share?RetainedEarningsearningsper shareA) unchangedunchangedB)unchangeddecreasedC)decreasedunchangedD)decreaseddecreased3.Which of the following criteria would lead to a lease being accounted for as a capital lease?A)The lease is for real property.B)The lease term is 75% or more of the leased assets estimated economic life.C)The present value of the minimum lease payments is greater than 75% of the leased assets fair market value at the time the lease is signed.D)Ownership of the leased asset stays with the lessor at the end of the lease term.E)All of the above.QUESTION ONE (contd)2 marks each:4.ABC Company repurchased and cancelled 1,000 of its common shares for $9,000. The original issue price on the shares was $8 per share. ABC Company has no contributed surplus. Which accounts are affected by this transaction?A)Common Shares decreases by $9,000Cash decreases by $9,000B)Investment in ABC Co. increases by $9,000Cash decreases by $9,000C)Common Shares decreases by $8,000Retained Earnings decreases by $1,000Cash decreases by $9,000D)Common Shares decreases by $8,000Loss on repurchase of shares increases by $1,000Cash decreases by $9,000E)Common Shares decreases by $8,000Contributed surplus decreases by $1,000Cash decreases by $9,0005.Assume the following shares outstanding at December 31, 2008: Preferred stock, $3, cumulative, 1,000 shares outstanding with dividends in arrears for 2006, 2007, and 2008. Common stock, 2,000 shares outstanding. No shares were issued or purchased during 2009. Total dividends declared in 2009 amounted to $30,000. The total amount of dividends to which common stockholders are entitled is:A)$30,000.B)$27,000.C)$21,000.D)$18,000.E)None of the amounts is correct.QUESTION ONE (contd)Use the following information to answer questions 6 10:Basket Company provided the following information from its inventory records for May 2008:Units PurchasedUnit CostTotal CostUnits SoldOpening Inventory 26 units$594.00$15,444PurchasesMay 528 units$604.00$16,912May 1930 units$608.00$18,240May 2515 units$620.00$ 9,300SalesMay 1232 unitsMay 2250 units6.Using the weighted average cost inventory method, what would the cost of inventory at May 31, 2008 be? Assume Basket Company uses a periodic system.A)$10,310.50.B)$10,508.55.C)$10,285.17.D)None of the above.7.Using the FIFO cost flow assumption, what would the cost of goods sold for May 2008 be? Assume Basket Company uses a periodic system.A)$49,380.B)$48,708.C)$49,798.D)None of the above.8.Using the FIFO cost flow assumption what would the inventory valuation at May31, 2008 be? Assume Basket Company uses a periodic system.A)$10,540.B)$10,516.C)$10,098.D)None of the above.QUESTION ONE (contd)9.Under the weighted average cost flow assumption what would be the unit cost of inventory at May 19, 2008, immediately after the May 19th purchase? Assume Basket Company uses a perpetual system.A)$604.27.B)$602.33.C)$602.00.D)None of the above.10.If Basket Company wanted to report the highest net income for May, which inventory cost flow assumption should it use?A)FIFO.B)Weighted average cost.C)Market value.D)Straight line.QUESTION ONE (contd)11. Poppi Corp. began operations in January 2008. The charter authorized the following share capital:Preferred shares: 9%, $25 par value, authorized 40,000 shares.Common shares: no par value, authorized 80,000 shares.During 2008 the company issued 20,000 common shares to each of the three organizers. It collected $9 cash per share from two of the organizers and received a plot of land with a small building on it in full payment for the shares of the third organizer and issued the shares immediately. Assume that 30% of the non-cash payment received applied to the building. The journal entry to record the shares issued would not include:A) an increase to cash for $180,000.B) an increase to land for $126,000.C) an increase to assets of $540,000.D) an increase to share capital for $540,000.E) none of the above, because all impact the company.12. The following information was available to the accountant of Dove Company when preparing the monthly bank reconciliation:Cash balance per bank$3,450Outstanding cheques972NSF cheque returned with the bank statement58Deposits in transit351Bank service charges33Notes receivable from customer, collected by bank575Error: cash payment of $532 received from a customer was incorrectly recorded on the books as523The cash balance of Dove Company prior to beginning the bank reconciliation wasA) $2,238.B) $2,270.C) $2,336.D) $2,354.E) none of the above amounts.QUESTION TWO (8 marks, 14 minutes)Able Trucking purchases a truck for $64,000 on July 1, 2008. The truck has an estimated salvage value of $4,000, an estimated useful life of five years, and an estimated total mileage of 300,000 kilometres.Required:a) If 50,000 kilometres are driven in 2008, what amount of amortization expense would Able record at December 31, 2008 assuming it uses the units-of-production method? (2 marks)b) If Able uses the double declining balance method of amortization, what amount of amortization expense would be recorded at December 31, 2008? (3 marks)c) Assume Able uses the straight line method of amortization and sells the truck on December 31, 2009 for $52,000. What will be reflected on the 2009 income statement relating to the truck? (3 marks)QUESTION THREE (10 marks, 18 minutes)Bromont Inc. started operations on May 1, 2009. The company purchased an old warehouse and sells lumber, mouldings and similar products for the booming home renovation business. The company will be audited and so must comply with GAAP. The original shareholders were tradesmen who loved helping customers with their projects but were not interested in administration; so in November, 2009, they hired a full-time president to oversee the business side of the operations. The president has assembled the data below. He is trying to finalize accounting policies and estimates and determine if there are any other actions that should be taken before the companys first fiscal year-end on December 31, 2009.Data:1. The company sells on credit to customers and estimates about $125,000 will be owing at year-end.2. Inventories are a little lower in the winter months and should be $200,000 by December 31, 2009.3. The amount paid for the warehouse included all the office furniture and display shelves left by the previous owners of the warehouse. The total purchase cost was $2,200,000.4. Sales orders have been higher than expected and are expected to be $3 million by December 31, 2009.5. The warehouse requires repairs in the amount of $150,000, which have been approved for 2009, but not yet spent. Required:Assume the president will earn a bonus based on 2009 net income. The president wants to ensure that the companys financial statements conform to GAAP, yet at the same time he wants to maximize his bonus. What accounting policy choices and decisions on estimates will he most likely make in order to maximize his bonus? Record your response to each data item in the table on the following page.QUESTION THREE (contd)Data ItemAction on Accounting Policy Choices , Estimates and Other.5.QUESTION FOUR (15 marks, 27 minutes)Complete the following table by indicating whether the independent events would improve (I), worsen (W) or have no effect (NE) on the financial ratios listed below:CurrentratioDebt-toequityReturnon equityReturnon assetsProfitmarginRatio before events2.50.808.5%10.2%6.8%(a) Write-down obsolete inventory.(b) Buy capital assets by taking out a loan due in 5 years.(c) Sell goods on account.(d) Declared and paid a cash dividend.(e) Issue common shares for cash.(f) Signed a five-year lease for office space, paying the first years rent in advance.QUESTION FIVE (24 marks, 43 minutes)Use “Selected Data from the Magnotta Winery Corporation Annual Report 2009” to complete the following questions.Part 1 (13 marks)Comment on the 2009 return on assets as compared to the 2008 ROA. On January 31st, 2007, total assets amounted to $45,457,615. Round all ratios to two decimal points. Round all dollar amounts to whole dollars.Part 2 (3 marks)Calculate the 2009 financial leverage percentage. Explain how the ratio should be interpreted (explain what it means). Round all ratios to two decimal points. Part 3 (3 marks)Calculate the 2009 inventory turnover ratio. Are you surprised by the ratio? Why? Explain why the inventory turnover ratio is used to assess liquidity. Round all ratios to two decimal points. Part 4 (2 marks)What type(s) of share capital can Magnotta issue? What is the maximum number of shares Magnotta can issue?Part 5 (3 marks)Explain the likely causes of the difference between gross sales and net sales reported on the income statement.QUESTION SIX (13 marks, 23 minutes)The accounting records of Cilantro Limited provided the following information for 2009:Beginning accounts receivable$ 90,000Ending accounts receivable120,000Beginning allowance for doubtful accounts3,000Accounts written off as uncollectible in Year 20095,500Accounts written off in Year 8 but collected in Year 2009700Cash sales were $900,000, while credit sales were $650,000. Recently, Cilantros management reviewed its method for allowing for doubtful accounts and reached the following conclusions:1. Bad debts should approximate 0.75% of credit sales.2. Aging of the accounts receivable at the end of the year indicated that 80% of the outstanding balance would incur a 2% loss, while the remaining 20% would incur a 10% loss.Required:a) Determine the 2009 bad debt expense and the ending balance of the allowance for doubtful accounts using the percentage of credit sales method. (5 marks)QUESTION SIX (contd)b) Determine the 2009 bad debt expense and the ending balance of the allowance for doubtful accounts using the aging of accounts receivable method. (6 marks)c) Cilantro Limited is in the process of applying for a bank loan. The bank has indicated that Cilantros net accounts receivable will be included as collateral for the bank loan, therefore, Cilantro wants to ensure that its net accounts receivable balance is as accurate as possible. Which method of allowing for bad debt expenses will the company most likely adopt and why? (2 marks) QUESTION SEVEN (9 marks, 15 minutes)The President of CFP Limited is considering making a change to one of the companys accounting policies. Every year the company makes considerable expenditures recruiting and training its employees. In fact, CFP Limited considers its employees to be the companys most important success factor. Currently the company expenses all recruiting and training costs when incurred. The President is proposing that the recruiting and training costs be capitalized and amortized over ten years (the average length of employment for employees in the company). Ignore income taxes.Required:1. Explain the effects of the proposed change in accounting policy on the cash flow statement. (3 marks)2. The President made the following comment at a recent Executive Meeting: “My proposed accounting policy change has an added benefit. If the change is adopted at the beginning of 2008, it will result in a much higher 2008 net income figure as compared to 2007 in the 2008 annual report. This should increase the share price”. Do you agree with the Presidents comment? Fully explain your answer. (3 marks)3. Do you agree with the Presidents proposed change in accounting policy for recruiting and training costs? Fully explain your answer. (3 marks) Ratio Formulas:Profitability ratios:Return on equity (ROE) =Net income Average shareholders equityROE & its profit drivers =ROE = net profit margin x asset turnover x financial leverageNet profit margin = Net incomeNet salesAsset turnover (AT) = SalesAverage total assetsFinancial leverage =Average total assetsAverage shareholders equityReturn on assets (ROA) =Net income + interest after tax*Average total assetsROA & the Dupont Formula =ROA = profit margin ratio x asset turnover ratioProfit margin =Net income + interest after tax*SalesFinancial leverage percentage =ROE - ROABasic earnings per share = Net income - preferred dividendsWeighted average number of common shares outstandingGross profit margin =Sales - cost of goods soldSalesQuality of income =Cash flows from operating